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Gold marks start of 2016 with strong January performance

Monday, February 1, 2016

The gold price ended January almost five per cent higher than it started the year, after turmoil in the international stock markets sent investors heading for a safe haven for their cash.

The turnaround in gold’s fortunes, leading the precious metal to its biggest monthly gain in a year, coincided with a 7.4 per cent fall in the value of US equities, the biggest drop since 2010. Gold’s value has increased after it fell to six-year lows in November and December 2015.

Whether gold can continue its strong performance will depend on outside influences, according to analysts. Economic figures from China are expected to play a key role in how investors use their money, with evidence of a slowdown as seen during January likely to benefit the value of the precious metal.

Feifei Li, analyst at Barclays, said in a note: “If a hard landing scenario for China were to materialise, it would likely spur safe haven demand, and could potentially prompt the Fed to reverse its tightening policy.

“On the other hand, a quick recovery in China may lead to greater risk appetite and continued rate hiking in the US.”

Last week, the Fed left interest rates on hold following December’s 0.25 per cent increase. Increasing the cost of borrowing generally happens when the economy is expanding and after the events of January in the markets, analysts are less inclined to bet on a further rise being imminent. The vote among rate-setters to leave the cost of borrowing on hold at the January meeting was unanimous.

While this is a positive for the value of gold, further poor economic news from China could also see the price of the precious metal rise further.

Gold started 2016 at £719.99 per troy ounce at 12.30pm on January 1 and had increased to £784.90 at 22.30 on Friday (29 January), where it remained until the markets opened this morning (Monday). Gold was valued at £785.15 per troy ounce at 09:00 today.